Dangerous Interference?

As Congress last week passed its Defense Production bill (see 'NATIONAL AFFAIRS), with its standby economic controls, a warning shout went up. Said topflight economist and Federal Reserve Board member, M. S. (for Menc Stephen) Szymczak: don't use them. "Direct controls," said he, "are [not the] answer to our immediate inflation problem. They deal only with effects and not with basic causes." Instead, the Government should cut down on the "rapid credit and monetary expansion . . . [and] current Government deficits which threaten to grow larger and larger."

Similar warnings came from the program committee of the Committee for Economic Development, the Mutual Life Insurance Co. of New York and the Guaranty Trust Co.

Said C.E.D.: "Such [direct control] measures are not only unnecessary now but would actually impede the nation's efforts to build its military force, prevent inflation and strengthen our economy. Overall direct controls inevitably interfere with the process of production and distribution of goods. They . . . weaken incentives, discourage attempts to increase supplies of scarce materials, and interfere with the growth of productivity. Their interference ... is cumulative, and is especially dangerous in a long-drawn-out period of rearmament."

Like Szymczak, C.E.D. thought that federal spending should be cut. It estimated that at least $23 billion could be lopped from nonmilitary projects and more from spending for farm price supports and mortgage purchases. C.E.D. also wanted excise, income and corporate taxes boosted (it thought the $5 billion boost in the pending bill was about right), but was against an excess profits tax except "in an extreme emergency." And credit should be tightened all across the board--on consumer goods, housing, business borrowing for plant, equipment and inventories. Summed up C.E.D.: The nation needs "quick and fundamental action now, quicker and more fundamental than is possible by the route of direct controls."

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